Asia Pacific International College

Welcome to SBM3310 Corporations Law

Dr Pradip Royhan
Lecturer
 Week 1
Overview of company law and the role of the regulators
• Foundation concepts (slides 4- 39)
• History of Australian Corporations Law (Slides 40- 43)
• Australian Securities and Investment Commission (ASIC) (slide 44-
46)
• Australian Securities Exchange (ASX) (slide 47-48)
 Sources:
• Gibson, A. & Fraser, D. (2015) Business Law, (9th ed), Pearson
Australia
• Lipton, P., Herzberg, A. & Welsh, M.(2015) Understanding Company
Law, (18th ed)Thomson Reuters, Australia
• Fitzpatrick, J., Symes, C., Veljanovski, A., Parker, D. (2014) Business
and Corporations Law (2nd ed) Lexis Nexis Butterworths, Australia
 Foundation Concepts:
• Law
• Sources of Law
• Common Law vs. Statute Law
• Civil Law vs. Criminal Law
• Origins of Australian Law
• Business Structure
 What is Law?
• “Law is basically a device to regulate the economic and social
behaviour of society.”
• Law has been defined as a set of rules, developed over a very long
period of time, regulating people’s interactions with one another.
 Sources of Law:
Two main sources of law in Australia:
• Common Law
• Statute law and delegated legislation
 Statute Law and Delegated legislation
• Statute law are the laws created by State and Federal parliaments.
• Statute law is also known as: legislation; Acts of Parliament; enacted law.
• Statute law also includes laws made by other government bodies.
• This is known as delegated legislation and takes the form of: by-laws; orders;
rules and regulations.
 Common Law vs. Statute Law
• Today, statute law is the most important source o f law as the great
majority of law comes from Parliament.
• Statute law overrules common law in the event of a clash between the
two.
 Common law System
• Australia inherited the common law system from England.
• This system can be further divided into two basic areas of law: civil
law( Citizen vs citizen- compensation – e.g. $$$ ) ; criminal law (State
vs. Accused- Punishment – e.g. jail.)
 Civil vs. Criminal law
• Civil – an action brought by one individual against another. Emphasis
is on remedies ( Examples of laws related to business – Contract,
Torts, Property Succession, Negotiable Instruments, Business Entities,
Trusts)
• Criminal – actions are brought by the Crown (state) against an accused
individual. Emphasis is on punishment (Examples of Business
Crimes- Extortion, Larceny, Embezzlement, stealing, fraud, Forgery,
Cyber attacks)
 Origins of Australian Law
• The Commonwealth of Australia Constitution Act 1900 (Imp) — the
six colonies became six states and the federal system of government
was created.
• Federation 1901- A new level of government established
• A national parliament with jurisdiction set down in the
Commonwealth Constitution (with some exclusive powers).
• State parliaments had jurisdiction within their own borders on any
matters not specifically reserved for the Commonwealth (residual
powers — customs, currency, trade, military)
 Statutory Offences
• There are a number of statutory offences, called crimes of “strict
liability” where intention is not necessary for an offence to occur; such
as breaches of the Corporations Act 2001 (Cth)
• Business activities are increasingly attracting criminal penalties,
including fines for companies and fines and possible imprisonment for
directors and executives are now becoming common in all Australian
jurisdictions
 Business Structure
• Sole Trader
• Partnership
• Joint Venture
• Incorporated Association
• Trust
• Company ( Public and Proprietary )
 Sole Trader
• A sole trader owns and controls his/her own business.
• It is the simplest form of business organisation
• It is the simplest form of business organisation to create.
 Advantage of Sole Trader
• Keeping all the profits –
• Ownership and control of the business
• Lack of formalities and inexpensive to form
• Nature of the business can be easily changed
• Maintenance of privacy
 Disadvantage of Sole trader
• Unlimited liability
• Business and sole trader are synonymous
• Degree of personal element can make the
• Business difficult to sell
• Lack of management skills or expertise
• Difficulty in raising large amounts of capital
 Partnership
• A basic form of collective ownership.
• A partnership is defined as ‘the relation which subsists between
persons carrying on business in common with a view to profit’.
 Advantages of Partnership
• Lack of formalities
• Inexpensive to form
• The nature of the business can be easily changed by agreement
between partners
• Tax advantages
• Maintenance of secrecy
• Potential for partners to pool capital and experience
 Disadvantages of Partnership
• Unlimited liability of partners as not a separate legal entity from its
members
• Numbers generally limited to 20
• Lack of permanence as partners and business synonymous
• Difficulty in selling one’s interest
• Inability contract with the firm
• Loss of control of management
 Joint Venture
• Joint venture is an association of persons or business structures that
combine to undertake a ‘one-off’ project whose aim is to produce a
product or output which will be shared amongst the co-venturers.
• It is a business arrangement and useful way of combining the
complementary talents , expertise and assets of different parties.
• Examples- Large infrastructure projects like toll bridges, expressways
etc.
 Advantages of joint Venture
• Simple to establish
• Lack of regulation
• No mutuality of agency
• Collective bargaining power
• Separate shares of the outcome of the venture
• Competition between co-ventures
 Disadvantages of joint Venture
• Joint venture is not separate legal entity
• Lack of fiduciary duty between the joint ventures
• Higher level of risk
 Syndicates
• A Syndicate is a combination of persons who have become associated
for the purpose of promoting some business enterprise or scheme.
• It may be formed of pursuing a scheme requiring a large capital
contribution, for example –buying shares
 Advantages of Syndicates
• Easy to formation
• Privacy
• Profit motive
• Unrestricted competition
 Disadvantages of Syndicates
• The syndicate is not separate legal entity
• Lack of fiduciary duties between the syndicate members
• Lack of performance
 Associations
• An association of two or more like-minded individuals who come
together o their own free will for a common purpose, whether for
profit or not
• It might be in the form of unincorporated or incorporated
 Unincorporated association
• It is not recognized by the law as the separate body or entity in its own
rights
• It is formed by the mutual agreement of its members
• It consists of nothing more than the aggregate of all its members at a
particular time
• Bodies, clubs and societies formed for the purpose of sport, recreation
and amusement, religious , charitable or community interests
 Incorporated association
• Its structure exists as a legal entity separate from the individuals(i.e. its
members )who compromise it;
• It is possible to limit the members’ liability by registration for an
unincorporated body under the relevant state and territory legislation,
or, for a company , under the Corporations Act.
 Trusts
• A trust is an obligation on a person (the trustee) as the legal owner of certain
property (trust property) to deal with property for the benefit of another person(the
beneficiary)
• A trust arises where property is held by a trustee for the benefit of the beneficiary.
• A trustee holds the legal title or exercises
• A trustee holds the legal title or exercises control over property for the purpose of
applying it to the benefit of others
 Broad categories of Trust
• Public trust (created to serve some public, charitable, religious,
educational or scientific purpose)
• Private trust (created to benefit particular individuals- family trust)
 Two main forms of Trusts
• Express Trusts are created by the intentional act of a person (a settlor)
through a written instrument — for example, a will. It can be
subdivided into discretionary (distribution of trust income and capital
proportion is chosen by trustee) and fixed trusts (trustee distribute
property and income in specific manner)
• Non-Express Trusts are those where intention is not expressed but it is
possible for the courts to imply or infer that there was an intention to
create a trust. It can be subdivided into implied trusts ( no express of
intention but the court presumes that intention did exist), resulting
trusts (some intention to create a trust but was not fully declared or
failed to complete it in someway) and constructive trusts (arises by the
operation of law rather than express or intention of the parties where
court may deem out of circumstances as an equitable remedy)
 Trustees duties to beneficiaries
• To act honestly
• To exercise reasonable care, skills and diligence
• Undivided loyalty to the terms of the trust
• To keep and render proper accounts
• To act personally
• To consider
• Fails to comply these duties will be a breach of trusts
 Trustee’s rights and powers
• A commission or remuneration
• Reimbursement of trust expenses
• Indemnity or contribution if there is any breach of trust
• Seek advice from the court
• Pay money into court
• Obtain a discharge of liability
• Trustee has extensive powers of management, administration, protection and
investment of trust property
• Authority to act and deal is contained in the trust deed, relevant state and territory
legislation an also in decisions of the court when settling trust disputes
• Trustee is personally liable for the debts and any other liabilities incurred while
exercising the rights , powers and duties in managing the trust
 Beneficiaries rights and liabilities
• Generally no right to demand either income or capital from the trust
• Very limited rights to any assets held in that trust
• If trustee has neglected or defrauded the trust, the beneficiaries may be
entitled to bring proceedings for restitution of any missing trust funds
or property .
• They can claim against a third party who has received trust property
improperly.
• Beneficiaries are not generally liable for any debts of the trust or any
improper or fraudulent actions of the trustee
 Advantage of trusts
• Ease of formation
• Flexibility
• Taxation advantage
• Asset protection
• Privacy
• Limited liability protection
 Disadvantages of trusts
• Personal liability of trustee
• Ongoing administration cost
 Company or Corporation
• A ‘company’ or ‘corporation’ is an association of persons who, having
satisfied the requirements of the Corporations Act 2001 (Cth) for
registration, are given a separate legal entity
• Company or corporation are used to mean the same thing but often
corporation implies a larger entity
• Corporation includes a company, any body corporate, and an
unincorporated body that has become incorporated under State law
• Corporation refers to any artificial legal entity as opposed to natural
legal personality
 Advantages of Companies
• A separate legal entity from the shareholders or members, as well as
those who control its operation
• Limited liability
• Perpetual succession
• The company can sue and be sued
• Transferability of shares
• Taxation benefits
 Disadvantages of Companies
• Cost of establishment and ongoing fees
• Onerous reporting and administrative requirements required by law –
Limited management role for shareholders
• Possible loss of control of the company to shareholders
• Increasingly onerous legal responsibilities placed on company officers
and directors
 History of Corporations Law
• The first major Companies Act was passed by the UK Parliament in
1844, governed the creation of companies by a process of
incorporation.
• In1855, legislation introduced the concept of limited liability where
the shareholders were liable for the companies losses only to the
extend of the nominal value of their share.
• 26 January 1788, the British colony of New South Wales was declared
and all existing English law was applied.
• In 1871, Colonial government of Victoria introduced ‘No liability’ for
mining companies –particularly for gold.
 History of Corporations law - continued
• The Commonwealth of Australia Constitution Act 1901 granted
Federal Parliament the power to make laws with respect to ‘foreign
corporations, trading and financial corporations formed within the
limits of the Commonwealth’ under s51(xx).
• After 1901 the former colonies became state and each State had its
own Companies Act
• In 1961, uniform Companies Act was an attempt to have uniform law,
adopted by each state
• In 1980, a Co-operative Scheme was attempted where each State
passed the same legislation known as Companies Code.
 History of Corporations law -
continued
• In 1989, the Commonwealth Parliament enacted a new legislative
package, including the Corporations Act 1989(Cth) and the Australian
Securities Commissions Act 1989(Cth)
• Prior to royal assent, it was challenged by NSW and Western Australia
and High court held that Federal Parliament did not have that power
• In 1990, the commonwealth, States and Northern Territory agreed to
adopt a statute called Corporations law
• Therefore, Each State and Territory had its own Corporations Law which
operated with national effect
 History of Corporations law -
continued
• 01 January 1991, the Corporations Law commenced operation under Australian
Securities Commission
• In August 2000, the Attorney General of State and Northern Territory agreed to hand
over to the Commonwealth the necessary power to institute a truly Federal Corporations
Act.
• As a result of the enactment of the referral legislation by the States, the Commonwealth
passed the Corporations Act 2001(Cth) and the Australian Securities and Investment
Commission Act 2001 (Cth).
• This Act replaced the previous Corporations Act 1989 (Cth) as well as the eight versions
of Corporations Law of the various States and Territories.
• The Corporations Act became operative on 1 July,2001and now applies Australia wide
and administered and enforced on a national basis by Commonwealth bodies such as
ASIC
 Australian securities and
Investment Commission (ASIC)
• ASIC was established in 1980 as the national corporate watchdog and was known
as the National Corporations and Securities Commission (NCSC). In 1991,
NCSC and the Corporate Affairs Office of the states and territories were replaced
by Australian Securities Commission(ASC) which in tern renamed as the
Australian Securities and Investment Commission (ASIC)
• In August 2010, ASIC also assumed responsibility from the Australian Securities
Exchange (ASX) for the supervision of trading on Australian licensed equity,
derivatives and future markets.
• From 28 May 2012, ASIC became responsible for the national Business names
Register by taking over this responsibility from the states and territories.
 Objectives of ASIC
• Maintain, facilitate and improve the performance of the financial system and
entities
• Promote the confident and informed participation of investors and consumers
in the financial system
• Administer the relevant laws
• Receive , process and store the information given to the Commission
• Ensure that information is available for the Public
• Take necessary action in order to enforce and give effect to the laws that
confer functions and powers on it.
 Functions and powers of
ASIC
• Registering companies
• Registering business names
• ASCOT Database
• Regulation of financial services and markets
• Takeovers
• Powers of investigation
• Powers to bring legal proceedings
• Education role
• Consumer protection
 The ASX
• Formerly called Australian Stock Exchange, operates Australia's main
financial markets for equities including shares , derivatives and fixed
interest securities.
• ASX was forme in 1987
• In 1998, it became public company
• Until August 2010, it supervised trading on financial markets and after
that ASIC has been doing it
• ASX is one of the world’s leading financial market exchanges, offering a
full suite of services, including listings, trading, clearing and settlement,
across a comprehensive range of asset classes.
 Responsibilities of ASX
• Providing adequate arrangements for operating markets
• Admitting entities to its official list
• Supervising listed entities
• Monitoring and enforcing compliance with the market’s operating rules
including its listing rules
• It formed a Corporate Governance Council comprising 21 interested
organistaiosn which issued its Principles of Good Governance and Best
Practices Recommendations in 2003 and the current version is Corporate
Governance Principles and Recommendations with 2010 Amendments
issued in 2010